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FASB
updated accounting standards on stock compensation to resolve diverse
accounting treatments of awards linked to performance targets, such as
an initial public offering or a specific profitability metric, that
could be longer-term than the recipient’s employment.

Previously, U.S. GAAP did not contain explicit guidance on how to
account for share-based payment awards that require a specific
performance target to be achieved for employees to become eligible to
vest in the awards.

FASB’s update, Compensation—Stock Compensation (Topic 718):
Accounting for Share-Based Payments When the Terms of an Award
Provide That a Performance Target Could Be Achieved After the
Requisite Service Period, is available at tinyurl.com/l7bk7e2.

The amendments require that a performance target that affects
vesting, and that could be achieved after the requisite service
period, be treated as a performance condition.

A reporting entity should apply existing guidance on Topic 718 as it
relates to awards with performance conditions that affect vesting to
account for such awards. As such, the performance target should not be
reflected in estimating the grant-date fair value of the award.

Compensation cost should be recognized in the period in which it
becomes probable that the performance target will be achieved and
should represent the compensation cost attributable to the periods for
which the service has already been rendered. If it becomes probable
that the performance target will be achieved before the end of the
requisite service period, the remaining unrecognized compensation cost
should be recognized prospectively over the remaining requisite
service period.

The total amount of compensation should reflect the number of awards
that are expected to vest and should be adjusted to reflect those
awards that ultimately vest.

The requisite service period ends when the employee can cease
rendering service and still be eligible to vest in the award if the
performance target is achieved.

For all entities, the amendments take effect for annual periods and
interim periods within those annual periods beginning after Dec. 15,
2015. Earlier adoption is permitted.

Entities may apply the amendments either prospectively to all awards
granted or modified after the effective date or retrospectively to all
awards with performance targets outstanding as of the beginning of the
earliest annual period presented in the financial statements and to
all new or modified awards thereafter.

New
accounting rules approved by FASB are designed to make financial
reporting about consolidation more transparent and consistent.

FASB planned to issue the standard following the drafting of the
final Accounting Standards Update (ASU).

All public and private companies that apply variable-interest entity
(VIE) guidance will be affected by the ASU, as will limited
partnerships and similar legal organizations such as limited liability corporations.

The new rules are intended to be less complex for limited
partnerships and similar legal organizations. In addition, the rules
are designed to simplify the consolidation guidance to focus more on
principal risk, and remove the indefinite deferral available to
certain investment funds.

The ASU will:

Change requirements for when a general partner consolidates a
limited partnership.

Clarify when fees paid to a decision-maker (such as an asset
manager) should be considered for VIEs when evaluating if a
decision-maker is required to consolidate the VIE.

Reduce the complexity of the guidance for VIEs as it applies to
related-party relationships such as affiliates.

FASB
published proposals that are designed to simplify the measurement of
inventory and eliminate the concept of extraordinary items.

The proposals are part of FASB’s simplification initiative, which is
designed to reduce cost and complexity in financial reporting while
improving or maintaining the usefulness of information to users
through narrow-scope projects that could simplify GAAP in a short period.

In the proposal titled Inventory (Topic 330): Simplifying the
Measurement of Inventory, FASB proposes measuring inventory at
the lower of cost or net realizable value. The proposal is available
at tinyurl.com/lnn929j.
Current GAAP requires reporting organizations to measure inventory at
the lower of cost or market, where market could be net realizable
value, replacement cost, or net realizable value less a normal profit
margin when measuring inventory.

The other proposal, Income Statement–Extraordinary and Unusual
Items (Subtopic 225-20): Simplifying Income Statement Presentation
by Eliminating the Concept of Extraordinary Items, seeks to
lower cost and complexity by eliminating the concept of extraordinary
items. The proposal is available at tinyurl.com/lphgrr5.

Under current GAAP, organizations are required to evaluate whether an
event or transaction is an extraordinary item. If deemed
extraordinary, the item is required to be separately presented and
disclosed. But, according to FASB, uncertainty arises in the
determination of whether items are extraordinary, because it is
unclear when an item should be considered both unusual and infrequent.

FASB expects that both proposals, if approved, would be applied
prospectively in annual periods, and interim periods within those
annual periods, beginning after Dec. 15, 2015. Early adoption would be permitted.

Comments on the proposals can be submitted through Sept. 30 at FASB’s
website at tinyurl.com/ybx6fca.

A
lively discussion by a new revenue recognition transition resource
group gave FASB and the International Accounting Standards Board
(IASB) plenty of views to consider as they ponder how to help
preparers with implementation questions related to the revenue
recognition standard issued in May.

The resource group does not issue interpretations or guidance.
Rather, as a meeting of preparers, auditors, and financial statement
users, it is tasked with discussing implementation problems and
questions submitted by interested parties.

Following the group’s discussion, FASB and the IASB will decide what
action, if any, needs to be taken to address the questions presented
in the transition resource group meetings.

Three of the four issues that were discussed at the group’s first
meeting in July produced spirited debate and plenty of questions for
the boards to consider. Many of the discussions ended with little or
no consensus or resolution.

The first topic of conversation was a concern that there may be
multiple interpretations of application of the guidance about
determining and accounting for whether the entity is a principal or an
agent to contracts for certain intangible goods and services.

Other topics discussed included:

Revenue or cost reduction. There is concern that
there may be multiple interpretations of the application of the
guidance in determining whether to present certain items billed to
customers as revenue or as a reduction of costs.

Sales-based and usage-based royalties. Different
interpretations exist about applying the new standard to sales-based
and usage-based royalties promised in exchange for licenses of
intellectual property to a contract that includes a promise to deliver both:

One or more licenses of intellectual property, and

One or more goods or services that are not licenses of
intellectual property.

Impairment of capitalized contract costs. Clarity was sought on
impairment testing of the asset recognized from the incremental costs
of obtaining a contract or costs incurred in fulfilling a contract
with a customer, and the use of the principles for determining the
transaction price to ascertain the cash flows that the entity expects
to receive in exchange for the goods or services to which the asset
relates, especially the question of whether or not the consideration
expected to be received during renewal or extension periods should be
considered in the impairment analysis. There was little debate on this
topic, as the members of the group overwhelmingly agreed on View 2,
which states that renewals and extensions may be considered for the
impairment test.

FASB Vice Chairman James Kroeker said that after issues are discussed
by the transition resource group, the boards hope to be able to
provide updates at the following meeting on their assessment of the
issues. The next meeting is scheduled for Oct. 31.

More information on the new revenue recognition standard is available
on the AICPA’s website at tinyurl.com/q4e9r8z.

A
new international forum is bringing together key players in corporate
reporting to promote more coherence, consistency, and comparability
between corporate reporting frameworks, standards, and related requirements.

The Corporate Reporting Dialogue was introduced by the International
Integrated Reporting Council (IIRC). Along with the IIRC, participants
in the Corporate Reporting Dialogue will be:

CDP, a not-for-profit international sustainable economy advocate.

The Climate Disclosure Standards Board.

FASB.

The Global Reporting Initiative.

The International Accounting Standards Board.

The International Public Sector Accounting Standards Board.

The International Organization for Standardization.

The Sustainability Accounting Standards Board.

Huguette Labelle, the chair of Transparency International and an
IIRC council member, will chair the Corporate Reporting Dialogue. She
said in a news release that the forum will promote cohesion and
efficiency, rebalancing reporting in favor of the reader, and helping
to reestablish the connection between a business and its principal stakeholders.

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